Franchising and Leasing

Question 1

What is a franchise?

Answer 1

The right granted to an individual/group to market goods/services within a certain area.

Question 2

What is franchising?

Answer 2

An ongoing relationship where a franchisor sells the right to use a business concept already in use elsewhere to a franchisee in a particular area.

Question 3

Who pays the franchise fees?

Answer 3

The franchisee.

Question 4

Who owns the rights and trademarks of a business?

Answer 4

The franchisor.

Question 5

What are benefits of franchising to the franchisee?

Answer 5

• Reduced financial and business risk.
• Lower initial set-up costs.
• Proven system of operation, goods and services, etc.

Question 6

What are the disadvantages of franchising to the franchisee?

Answer 6

• Expensive to purchase.
• Ongoing support is not always provided.
• Very limited freedom for creativity by the entrepreneur.
• Agreements can be difficult to terminate, etc.

Question 7

What are the advantages of franchising to the franchisor?

Answer 7

• Franchisees provide start-up capital.
• Rapid expansion of business.
• Initial fee paid by franchisee provides the franchisor with a large sum of capital, etc.

Question 8

What are disadvantages of franchising to the franchisor?

Answer 8

• High operating costs in setting up an effective head-office.
• Franchisor has an obligation to ensure an ongoing, successful operation.
• Franchisor has an obligation to train franchisees.

Question 9

What are contractual implications in franchising?

Answer 9

• The franchisee must follow the policies of the parent company.
• The franchisee pays royalties - a flat fee or share of the profits.

Question 10

What is a lease?

Answer 10

An agreement that allows for the use of an asset for a specific period for a fee.

Question 11

Who is the lessee?

Answer 11

The person/business that pays for the use of the asset for a period of time.

Question 12

Who is the lessor?

Answer 12

The person/business that allows the lessee to pay to use the asset for a period of time.

Question 13

What are contractual obligations of leasing?

Answer 13

• The lessee rents the asset for a period of time.

- The lessee pays leasing charges to the lessor in regular instalments, usually monthly.

Question 14

What are the advantages of leasing for the lessee?

Answer 14

• The asset can be returned when not needed.

- The administration of leasing is simple and quick.